KemPharm's (KMPH) CEO Travis Mickle on Q2 2016 Results - Earnings Call Transcript

| About: KemPharm (KMPH)
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KemPharm, Inc. (NASDAQ:KMPH) Q2 2016 Earnings Conference Call August 10, 2016 8:30 AM ET


Jason Rando - Tiberend Strategic Advisors

Travis Mickle - President and CEO

LaDuane Clifton - CFO



Good day, ladies and gentlemen, and welcome to the KemPharm Second Quarter 2016 Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this call maybe recorded.

I would now like to introduce your host for today's conference, Jason Rando of Tiberend Strategic Advisors. Please go ahead.

Jason Rando

Good morning everyone. Thank you for joining our call today. At this time, I would like to remind our listeners that remarks made during this call may contain forward-looking statements that involve risks and uncertainties, and are subject to changes at any time including, but not limited to, statements about KemPharm's expectations regarding future operating results.

Forward-looking statements on this call are made pursuant to the Safe Harbor provisions of the Federal Securities Laws. Information contained in the forward-looking statements is management's beliefs based on current expectations, and is subject to change. And actual results may differ materially from forward-looking statements. KemPharm disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments, except as required by law.

There is more complete information regarding the forward-looking statements, risks, and uncertainties in the reports KemPharm files with the SEC. These documents are available on KemPharm's Web site at, under the Investor Relations section, and we encourage you to review these documents carefully.

Speaking on today's call will be Travis Mickle, President and CEO, who will provide an update on KemPharm's corporate and clinical development achievements including the recent regulatory events involving Apadaz. Following Dr. Mickle, LaDuane Clifton, CFO, will review KemPharm's second quarter 2016 financial results. At the conclusion of the remarks, we will then proceed to a question-and-answer session.

I will now turn the call over to Travis.

Travis Mickle

Thank you, Jason. And welcome everyone. This has been a significant period for KemPharm, not only regarding Apadaz, but also with respect for advancing pipelines and broader development strategy. As disclosed in our press release this morning, KemPharm and representatives from the FDA held an end-of-review meeting for Apadaz on August 3.

We requested this meeting following the complete response letter for Apadaz that was issued in June. Our rationale for the end-of-review meeting was to discuss the issues identified by the FDA in the Apadaz NDA, and to discuss the NDA amendment request that was filed in conjunction with the June 9 PDUFA.

I can report that the end-of-review meeting clarified several of the issues that first arose during the Apadaz AdCom, and were subsequently reflected in the CRL particularly related to abuse-deterrent labeling. We were able to have an open discussion of fundamental issues pertaining to hydrocodone-acetaminophen combination products, abuse-deterrents in relation to the broader immediate-release prescription opioid market, and published industry guidance from the FDA concerning the evaluation and labeling of abuse-deterrent opioid.

Additionally, while the FDA was unable to respond to our NDA amendment when it was submitted, we were pleased to learn that the end-of-review meeting that our proposed -- at the end-of-review meeting, sorry, that our proposed short duration blister packaging for Apadaz was well-received and aligned with suggestions provided prior to our filing to amendment.

As described in our press release this morning, the short duration blister packaging was proposed in accordance with the CDC guidelines for prescribing opioids for chronic pain, which advises that clinicians should prescribe the lowest effective dose of immediate-release opioids, and should prescribe no greater quantity than needed for the expected duration of pain severe enough to require opioids.

The Apadaz AdCom and subsequent CRL were disappointing. At the time, we were prepared and filed the Apadaz NDA into the AdCom, and through the end of the PDUFA process we believe that the data presented would support Category 1, Category 2, and potentially Category 3 abuse-deterrent language. Our view in this has not changed.

However, we learned that the division is focusing primarily on Category 3 data, particularly endpoints that may be more relevant for extended release products in determining whether a product is eligible for any abuse-deterrent language. So the data submitted in the Apadaz NDA supported important elements of the Category 3 criteria, the data did not meet the endpoints of greatest relevance to the division, and KemPharm and the FDA could not agree as to an appropriate label, thus resulting in the CRL.

Fundamentally, there was no disagreement as to the approvability of Apadaz as both a safe and effective pain reliever, but the only issue left is the labeling of the product as abuse-deterrent. Understanding this, there are options that could enable a pass for Apadaz product label that would include abuse-deterrent claim. We are therefore in a continuing dialogue with the FDA to identify the optimal route forward.

While the ongoing effort with the FDA concerning Apadaz has presented a near-term challenge for the company, our mission today is unchanged; to discover and develop proprietary prodrugs that improve one or more of the attributes of approved drug, such as the potential for abuse, improved bioavailability or efficacy, as well as safety. In this regard KemPharm is in a very enviable position. We possess a broad and differentiated pipeline that should result in several near-term milestones enable KemPharm to generate significant value. Key to the potential of KemPharm is our Ligand Activated Therapy, or LAT, discovery platform, which creates prodrugs by chemically attaching one or more molecules for Ligands to an FDA approved parent drug.

When combined with the parent drug, our Ligand creates produrg designed to have improved drug attribute while maintaining efficacy at equivalent or greater than the parent drug. Once it administered target human metabolic processes such as those in the GI tract separate the Ligand from the prodrug and release the parent drug, which can then exert its therapeutic effect.

Utilizing our LAT platform, we have created a deep and diverse portfolio of product candidates plugging opportunities and pain management ADHD and CNS disorders. So, each prodrug in our pipeline is developed with the same discovery engine, each is chemically unique and utilizes specialized Ligands that are selected based on specific chemical compositions of the target molecule.

For instance, Benzoic acid was identified as a Ligand for Apadaz with our LAT discovery process, based on its ability to enable abuse the term properties when bonded to hydrocodone. Similarly, KP511 and KP415 is different Ligands based on the properties of hydromorphone and methylphenidate. Our strategy at KemPharm is the first identified treatment categories in drugs set of the potential for improvement and then utilize our LAT discovery platform to develop and advance our prodrugs in a cost and time efficient manner.

This capability distinguishes KemPharm of some other specialty pharmaceutical and biotech technology companies, where binary advance can have a significant impact. Our approach enables us to quickly capitalize on the next opportunity or series of opportunities in our pipeline while simultaneously discovering new prodrug that could help with our supply and strengthen our product portfolio. Given this we remain focused on the development of our two most advance extended release product candidates, KP511 extended release for the treatment of severe pain and KP415 for the treatment of ADHD [ph], as well as continuing our work on KP201/IR our acetaminophen-free immediate release hydrocodone produrg.

As announced in July, we completed an end of Phase 1 meeting for KP201/IR to obtain input from the agency on our proposed clinical and non-clinical program required for the eventual submission of an NDA. We were questioned in the Phase 1 meeting for KP201/IR ahead of an anticipated IND submission based on the amount of data both non-clinical and clinical generated from the development of Apadaz. Perhaps most importantly data from the KP201.A03 study intranasal pharmacokinetics study which was designed to compare the amount of hydrocodone released from KP201 and that's from hydrocodone bitartrate, both of which were without acetaminophen after intranasal administration, demonstrated this significant reduction in Cmax, a delay in Tmax and significant decrease in total exposure to hydrocodone, especially at early time point typically associated with increase drug liking, abuse and safety concern.

Secondary endpoints related to drug liking, including drug liking Emax pupillometry and ease of snorting also showed significant differences between KP201 and hydrocodone bitartrate. With KP201 demonstrating the lower drug liking less people violation and higher difficulty of snorting than hydrocodone bitartrate.

In our estimation, this data set aligned with the division's criteria for achieving abuse deterrence product labelling and we believe KP201/IR now had the clear development path based on what we've learned during the end of Phase 1 meeting and the end of review meeting for Apadaz. Our next step with KP201/IR is the filing NDA before year end.

Switching to KP511, our prodrug of hydromorphone, in late June, we reported positive results from our Phase 1 proof-of-concept trial, which was designed to assess the bioavailability of four, eight, and 16 milligram doses of KP511 compared with the four milligram dose of four milligram Dilaudid Oral Liquid after oral administrations under fasting condition.

In the trial, KP511 effectively released the active hydromorphone into the bloodstream from no one project was found in the systemic circulation of any subject. The equivalent doses of eight milligram of KP511 and four milligram Dilaudid oral liquid or bioequivalent with regard to overall hydromorphone exposure. In the trial KP511 demonstrate a similar safety profile as Dilaudid and was well tolerated with only adverse events reported difficult for oral opioid.

Based on the positive Phase 1 results, we intend to initiate a human abuse liability clinical program prior to the end of this year. The clinical program has been designed to assess the product candidate tamper and extraction resistance, intranasal and intravenous abuse potential, as well as the potential to limit oral abuse and/or overdose.

Additionally, we intend to investigate KP511's potential to improve or reduce opioid-induced constipation or OIC, a common side effect of opioid therapy. Our plan is to develop KP511 as an abuse-deterrent extended release formulation for KP511/ER. Currently there are no abuse-deterrent ER hydromorphone products in development, and we believe a differentiated product with potential abuse-deterrent and patient benefit could capture a significant portion of the estimated $350 million hydromorphone market.

Lastly, KP415, our prodrug of methylphenidate for the treatment of ADHD represents perhaps our highest value product. As some of you may be aware, the history of KemPharm is rooted in the ADHD space. With many of the founders and scientists, including myself, responsible for the development of Vyvanse, which is a prodrug of amphetamine, and today is the branded market share leader in an estimated $15 million-plus ADHD market.

In 2015, methylphenidate accounted for approximately 19.7 million prescriptions and 4.2 billion in sales. However patent expiration in the ADHD space is eroding the revenues for branded products such as Focalin and Concerta. Simply stated, our plan with KP415 is to bring the patient and the prescriber benefits of Vyvanse now to the methylphenidate market. In preclinical studies of KP415 we have observed features that may provide these meaningful benefits when compared to other FDA-approved and widely prescribed methylphenidate products.

Pharmacokinetic data from preclinical studies suggests that the time to maximum plasma concentration of methylphenidate after oral administration of KP415 is approximately three times longer compared to currently marketed IR methylphenidate. We believe this inherent controlled release attribute of KP415's molecular structure may allow for convenient once-daily dosing, similar to Vyvanse.

As announced in mid-July, we completed the pre-IND meeting of KP415 with the FDA based on input received from the agency. KemPharm expects to file an IND for KP415 during the second-half of 2016, as well as complete our initial proof-of-concept study.

In closing, there is much to be enthusiastic about with KemPharm. With the end-of-review meeting for Apadaz complete, we now believe there are options available that could provide a potential pass-forward for an Apadaz product label that could include abuse-deterrent claim. Additionally, we possess a deep and differentiated pipeline highlighted by KP201/IR, KP511/ER, and KP415. These programs should provide immediate and long-term value, building opportunities for KemPharm. And we are orienting our financial and R&D resources to ensure their success. Overall, KemPharm remains well-capitalized to advance its full pipeline of products, and we welcome the opportunity to keep investors fully informed of our clinical, regulatory, operational, and financial activity.

With that, I will turn the call over to LaDuane, who will review our second quarter financials. LaDuane?

LaDuane Clifton

Thank you, Travis, and good morning everyone. Just a quick review of our financials for Q2, we reported net income of $9.8 million or $0.59 per basic share. That was driven solely by a $20.8 million decrease in the fair value of our derivatives and warrant liability. Our operating loss for Q2 was $9.3 million, versus $6 million in the same quarter of 2015. The increase in the operating loss compared to Q2 of 2015 was driven by a $2.2 million increase in R&D spending related to KP511 and KP415, and a $1.1 million increase in G&A expenses due to increased headcount and commercial activities during the quarter. Total cash, as of June 30, was $102.6 million, which was a decrease of $8.4 million from March 31.

We remain well-positioned with resources to support our ongoing development efforts that Travis has outlined, and so we look forward to continuing to allocate those resources judiciously.

And so with that, I will turn the call back over to Travis.

Travis Mickle

Thank you, LaDuane. Again, I appreciate your time this morning. And now I'd like to open it up for any questions that you may have.

Question-and-Answer Session


Thank you. [Operator Instructions] Our first question comes from the line of Randall Stanicky with RBC Capital Markets. Your line is open. Please go ahead.

Unidentified Analyst

Great, thanks. This is Aishwarya [ph] on for Randall, thanks for taking my question. So just to clarify, given the issue with CRL, can we take this to mean that both you and the FDA are in agreement over what the label could look like. And if so, can we get a little bit more color around the type of abuse-deterrent language you see potentially [ph] on the label? And I just have a quick follow-up after that.

Travis Mickle

Hi. The first part of your question about the agreement between what the company and FDA could agree on a label, we are in agreement on everything except for the abuse-deterrent claims, as I stated on the call. And the second part of your question, I can't really give you any details there because we don't know where the different options lie. We know that there are several options, and we continue to explore those with the FDA.

Unidentified Analyst

Okay. And what's the potential timeline that you guys are expecting for a CRL resolution; will it be a Class 1 or Class 2 resubmission?

Travis Mickle

Again, that's one of the options that we're exploring. There's certainly a number of different paths we can take, some more formal and some less formal. Many of those don't have bound timeline. So, I can't really give you any insight as to how long that may take.

Unidentified Analyst

Okay, got it. Thank you.


Thank you. [Operator Instructions]


And I'm showing no additional questions. At this time, I'd like to turn the call back over to Travis Mickle, President and CEO, for any closing remarks.

Travis Mickle

I appreciate everyone's time for being on the call this morning again. And look forward to updating you on the continued progress of our products and our pipeline, as well as any developments that may occur with Apadaz. Thanks again.


Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.

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